National Accounting
Costs and Benefits Amid Rapid Technological Change

The tools we traditionally use measure economic progress are badly outdated in today’s world. Case in point:

Americans spent more at retailers selling everything from cars to camping gear in July, but they spent less at electronics stores.

How can this be when gadget-head consumers are equipped with everything from Fitbitsto Beats by Dre headphones?  One answer is that websites and general-merchandise stores are stealing sales from traditional electronics purveyors such as Best Buy and the struggling Radio Shack.

Another reason is that electronics are getting cheaper.

Sales at electronics and appliance stores fell 2.5% from a year earlier in July, according to the Commerce Department’s retail sales report released Thursday.

But adjusting for inflation, that’s not a bad result. The price of products sold at those stores was down 6% in June from a year earlier.

It’s not just that electronics are getting cheaper, its also that they are getting better. The item that is 33% cheaper is often also 2x better—and can do 10x as much because of the pervasive connectivity, and advanced software and customizability (think ‘apps’) that make these gadgets more useful overall.

GDP stats, real wage stats and many others just don’t capture this.

They also don’t fully capture how different parts of the economy are behaving differently. Health care costs are going up very fast, but results are also getting better. Doctors can cure many more conditions and extend quality life spans more than ever before, even it it all costs much more. How do you quantify the difference between a $30,000 heart procedure that lets you live miserably for another two years against one that costs $150,000 and extends your lifespan indefinitely? Or a lousy $20,000 hip replacement with the kind that lets you play tennis for another 20 years and costs $200,000? And yet in education, the costs go up but the output seems stagnant, or is even declining…

There was a lot of naive chatter from the usual well-intentioned but misguided cohort about revising GDP stats to take ‘national happiness’ into account. Good luck with that. But there is a serious case for thinking much harder about how to measure living standards, real incomes, and inequality in a world of rapid technological change.

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